First the Miners, now the Banks, then Property? Going to be a Hard Landing for… Australia, by Wolf Richter and Lindsay David

Things are getting dicey Down Under. From Wolf Richter at

A housing market set for the mother of all corrections.

“I think it’s important that people don’t hyperventilate about these type of things.” With these words, Australian Prime Minister Tony Abbott tried to soothe the world’s rattled nerves today about the ongoing crash in China. Australia is heavily exposed to China, the biggest consumer of its commodity exports.

“It is not unusual to see stock market corrections,” he said about the relentlessly brutal three-month crash that has taken the Shanghai Composite down 43% so far.

“It is not unusual to see bubbles burst in particular markets and for there to be some flow-on effect in other stock markets, but the fundamentals are sound,” he said, speaking of the Chinese fundamentals, and by extension, of the Australian fundamentals that depend so much on Chinese fundamentals.

And he said this though factory activity in China shrank at the fastest rate since the Financial Crisis, other indicators are heading south, cars sales are suddenly plunging, and the People’s Bank of China started devaluating the yuan to mitigate the problem, thus further hurting Australian exports to China.

So here’s Lindsay David, founder of LF Economics in Australia, weighing in on the “sound” fundamentals in Australia.

By Lindsay David, Australia Boom to Bust Blog:

It’s truly surprising since LF Economics released its chart pack on the Australian housing and debt markets the great interest that hedge funds and financial institutions in the US, Europe and Asia have in our product and work. The same however, cant be said for Australia. But that’s no big deal. Based on the analytics of this blog, Aussie institutions and government prefer or try to scrape the free data on this blog. I’m sure the same happens on the Macrobusiness website.

It felt just like yesterday when I released Australia: Boom to Bust. As I argue in the book, the Australian economy is incredibly dependent on what I call the “Three Pillars of the Australian Economy”: mining, banking, and real estate sectors. And as I argue, at least three of the five largest iron ore producers will go bust. And “at least” one of the big four banks will either go bust, be nationalized, or bailed out before the end of 2017.

The mining sector is already in dire straits. In order for miners such as Fortescue to survive, they must continue to increase output to keep their extraction costs low; and the spot price of iron ore must not fall any further. This is not sustainable. Unfortunately, only a small handful of us over the last year or two were warning about this scenario taking place. And today it is.

Now to the banking sector. More specifically the Big Four banks – ANZ, Commonwealth (CBA), National Australia Bank (NAB), and Westpac (WBC) . Yes those banks that are apparently strong and safe even though their stocks continue to slide off a cliff.

To continue reading:Going to be a Hard Landing for…Australia 

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